NetEase to spin off music streaming service in $1bn Hong Kong IPO

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Spotify rival Anghami isn’t the only music streaming company with IPO plans in 2021.

Chinese tech giant NetEase Inc. plans to spin off its subsidiary Cloud Village, which operates the music streaming service NetEase Cloud Music, from the main board of the Hong Kong Stock Exchange.

This is based on a listing application filed by NetEase in Hong Kong today (Wednesday, May 26).

Filing says the scope of the proposed offering is still ongoing, but Bloomberg reports that the IPO could raise approximately $ 1 billion.

The news of the potential $ 1 billion IPO of NetEase Cloud Music follows the recent intensification of competition between the music streaming service and its closest rival, Tencent Music Entertainment in China.

Tencent was investigated by anti-competitive watchdogs in China a few years ago for having entered into exclusive licensing agreements with the area’s three major music companies.

TME’s exclusive hold on the music streaming market in the region appears to have loosened in the past 12 months after NetEaseCloud Music signed licensing deals with Warner Chappell Music in May 2020, UMG in August 2020 and Sony Music Entertainment earlier this month.

A Reuters report last month suggested that China’s State Market Regulator (SAMR) could fine Tencent up to $ 1.5 billion after the investigation.

According to today’s announcement, the Cloud Village subsidiary of NetEase Inc was founded in February 2016 in the Cayman Islands and NetEase Cloud Music has been operated by Cloud Village since October 2016.

The filing states that NetEase’s online music services (i.e. NetEase Cloud Music) had over 180 million monthly active users in 2020. That’s just over half of the MAUs Spotify counted worldwide at the end of last year (345 million).

“The Cloud Village Group’s business is expected to expand relatively quickly and appeal to an investor base focused on high growth opportunities in the music streaming business.”

NetEase Inc.

One of the reasons for the spin-off, according to NetEase, is that “The Cloud Village Group’s business is expected to expand relatively quickly and would appeal to an investor base focused on high growth opportunities in the music streaming business.”

The filing adds: “[The] The proposed spin-off is expected to add value to the Cloud Village Group, which in turn will benefit the company as a majority shareholder in Cloud Village as a listing on the Hong Kong Stock Exchange (a) will improve the value of the Cloud Village Group under the profile its users and other business partners as well as its ability to recruit talent; (b) Enable the Cloud Village Group to independently access the equity and debt capital markets in the future, should this be necessary, and further improve its ability to secure bank credit facilities. “

Netease Inc, as filed, holds approximately 62.46% of the total issued share capital of Cloud Village and adds that upon completion of the proposed spin-off, “no less than” 50% of the voting rights will be held by Cloud Village. NetEase will therefore continue to be the parent company of Cloud Village.

The IPO sponsors are Hong Kong Securities Limited, Credit Suisse (Hong Kong) Limited and Merrill Lynch (Asia Pacific) Limited of China International Capital Corporation.

In November 2018, NetEase Cloud Music raised a $ 600 million round of funding from investors including Baidu, General Atlantic, Boyu Capital, and several others.

In September 2019, Chinese retail giant Alibaba announced that it had acquired a minority stake in NetEase Cloud Music after making a $ 700 million investment in the platform.

At the time, William Ding, Chief Executive Officer of NetEase Inc said, “As the majority shareholder in NetEase Cloud Music, we will continue to fully support the growth of this business and help it achieve its strategic goals in the music industry. ”

According to NetEase, the music service has attracted over 800 million registered users since its launch in April 2013.

The news of the Hong Kong IPO of NetEase Cloud Music follows a trend over the past few years where music streaming companies have chosen to trade in the stock markets.

Spotify was listed on the New York Stock Exchange in April 2018, and NetEase rival Tencent Music Entertainment traded under the symbol TME on the NYSE in December 2018.

In March, well-known Middle Eastern Spotify rival Anghami signed a definitive merger agreement with publicly traded special purpose vehicle (SPAC) Vistas Media Acquisition Company Inc. that will result in Anghami’s listing on NASDAQ in New York.Music business worldwide

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